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Microsoft May Do Harm by Backing Privacy Regulation

An Ad Age Editorial

Published on May 12, 2008.

Is Microsoft being a good corporate citizen or is it selling its soul to the regulatory devils?

News that the software giant is backing -- or at least giving tacit approval to -- privacy-protection legislation that could lead to the end of self-regulation gives cause for head scratching. Yes, people in support of privacy rights are pleasantly surprised by the news. Then again, many of these advocates spend as much time trying to get American consumers to care about internet-privacy issues as they do telling Congress that American consumers care about privacy issues. So an ally as powerful as Microsoft is welcome, especially considering that even "Don't Be Evil" Google has been running interference on many of these issues.

Perhaps there is truth to the claims that Microsoft is embracing a Philip Morris strategy. As the No. 1 tobacco company in the U.S., Philip Morris has learned to like regulation. It's great for the kids, great for the health of Americans -- and it just so happens to make it that much harder for competitors to gain more market share. If privacy-protection regulation got to the point where the cookies were taken off the table, it would wreak havoc among some of Microsoft's biggest competition, those online ad players whose main asset is targeting.

But that conspiracy theory makes no sense for a company that spent $6 billion to buy aQuantive and is trying to buy Yahoo. Microsoft Associate General Counsel Michael Hintze said as much: "It would be foolhardy for us to spend that kind of money... and then turn around and do something we think would undermine that business model," adding that consumers and advocates are "more comfortable" that a major company is being "responsible" with this touchy issue.

Mr. Hintze makes two good points. It would be foolhardy to sabotage your own business, and this could be a wise short-term PR move for a company looking to make nice ahead of a Yahoo merger.

But Microsoft should remember two things. First, regulators may be a well-meaning lot, but they have a tendency to keep regulating once they get started. And they have very short memories.

Second, unlike Philip Morris, Microsoft is not the category leader in this space. By throwing its weight behind potential regulation, it could very well scorch a swath of earth that it hasn't yet had a chance to till.